Lord Sainsbury of Turville: My Lords, I do not think that I can comment on the position of DTI officials five years ago. I simply do not know whether they were told or what action they took. The Commission has now written to the DTI to tell officials that it will ask member states to discuss the issue at the next meeting of the directive's technical adoption committee on 21 June. We believe that that discussion will lead to a satisfactory conclusion, which seems the best way to handle it at this stage.

Baroness Andrews: No, my Lords, I do not agree, because this review is complementary to the first Barker report, which was indeed on housing supply. It will do something that we have needed to do for some time, as it will show how the planning system can respond to wider economic challenges. We need, for example, to be able to predict where land will be needed for future employment and enterprise, how planning can help to deliver that, how that impacts on economic growth and where the new jobs and skills will need to be. It will have an important and beneficial impact on the way in which we collect and use evidence for better-informed policies and more productivity in future.

Baroness Amos: My Lords, the incentives in a way rest with the international community and the United Nations. The UN Security Council is having discussions on the back of recommendations from the IAEA. We all want to see Iran wanting to work with the international community, and we want to see a stable and prosperous region in the Middle East.

Baroness Williams of Crosby: My Lords, is the noble Baroness the Leader of the House aware of the article that appeared in yesterday's Financial Times, written by that distinguished Republican senator, Senator Chuck Hagel, in which he suggested that there had to be direct dialogue between Iran and the United States, bearing in mind not least the fact that one of the factors that may be playing on the mind of the Iranian Government is their sense of being increasingly surrounded by nuclear powers, most of whose adherence is towards the western group? Is any active attempt being made to discuss the possibility of security guarantees to Iran, on the understanding of course that that would imply that Iran kept properly and completely to the requests of the IAEA?

Lord Wright of Richmond: My Lords, does the Minister recall that, some time ago, I asked her noble friend Lord Triesman whether it was wrong and counterproductive not to have any dialogue with the democratically elected Palestinian Authority? In the meantime, have the Government had any second thoughts on that?

Lord Howell of Guildford: My Lords, I think that we all agree that, at present, this is an appalling dilemma for the Government. Does the Lord President accept that at the moment the Gulf states and some Arab oil-producing countries are absolutely awash with money and have so many billions that they do not know what to do with them. Are we pressing them to help their Palestinian brothers more effectively? Should they not come forward and face this critical situation?

Baroness Amos: My Lords, I agree that there is a role for countries in the region. The noble Lord may be aware that the Arab League sought to make a donation and was prevented from doing so by the banks in the region, which were concerned that they would face action from the United States. The situation is much more complicated and complex than it at first it appears to be.

Lord Sainsbury of Turville: My Lords, in responding to the noble Lord, Lord Hodgson, perhaps I may say that this is an area of great complexity. We have never claimed to get everything right the first time. It is absolutely essential for us to listen carefully to any amendments coming from any part of this House and to ensure that we have clear and effective answers. If we do not, we will then certainly make amendments. This legislation, which will determine how the, literally, hundreds of thousands of transactions that take place every week are carried out, is of critical importance.
	It is worth mentioning at the start that Clause 1 relates to the scope of the Companies Acts, and Clause 2 makes clear that by "Companies Acts" we mean, among other things, the company law provisions of this Bill. Not every provision of the Bill falls into this category. The part that deals with business names—to which this particular amendment refers—is an example of requirements applying far more widely than to companies alone. They are therefore not a matter of company law in the strictest sense.
	Another example would be the rules relating to audit in what is now Part 32. The question is how far we should go to indicate what regulatory requirements will apply to overseas companies. Our approach in this clause, which is essentially about the scope of company law, properly so-called, is to indicate the core company law requirements that apply to overseas companies; in other words, those appearing in, or applied to by, Part 25 of this Bill. This is what subsection (3) does: it does not attempt to provide an exhaustive list of, or a pointer to, all the regulatory requirements, whether company law or not, which may apply to overseas companies. There could be any number of such requirements, relating to tax, employment, consumer matters, and so on. The rules relating to business names are of this sort, and the clause as currently drafted does therefore not refer to them.
	I am confident that this is the right approach. First, I do not believe it would be possible to provide an exhaustive list of non-company law regulatory requirements. To include some but not others, as the amendment proposes, might be misleading and unhelpful to users. Secondly, I am concerned that if we were to indicate expressly that the provisions on business names applied to overseas companies, we might be taken as implying that they were not relevant to other companies, including unregistered companies, mentioned in subsection (2) of this clause. This risks giving a false impression.
	I should also mention that the noble Lord's amendment should probably refer to Part 31, rather than Part 32. As the noble Lord will remember, what was Part 31 of the Bill in Committee has now been removed and the numbering of the Bill has therefore been changed. The noble Lord should be forgiven for failing to reflect this change, as he is not alone in so doing. I confess that a change of this sort will be needed to Clause 2 when the Bill is next printed. I hope the noble Lord will understand that, whatever the correct reference in the amendment should be, we do not think it would be sensible to accept it as a matter of principle, for the reasons I have outlined. I hope the noble Lord will agree to withdraw it.
	In turning to Amendment No. 2, I should like to address separately the two aspects of this amendment: the deletion of the existing text and the insertion of the alternative text. The proposed insertion, while making clear that the registered office must be in the UK, would duplicate the requirement in subsection (5) of Clause 9 for the address of the registered office. The proposed deletion would remove the requirement for the company to specify within which UK jurisdiction its registered office is situated. Perhaps I should emphasise that the registration requirements will continue to be the same throughout the United Kingdom. Nevertheless, as I hope I can show, it is important to know where it is registered. We covered much of this territory in our debates in Grand Committee.
	We continue to consider that it is important to know within which UK jurisdiction a company's registered office is situated, and then to restrict where that office may actually be situated to that jurisdiction. There may come a time when such restrictions can be removed, but this will require making satisfactory provision where this matters. It is true that the location of a registered office within the UK has little or no effect on the application of most company law. However, it impacts on important matters relating to companies. For example, under the current legislative scheme, whether the registered office is in Scotland, Northern Ireland, or England and Wales, determines which rules apply for the registration of charges granted by the company. Furthermore, the jurisdiction of registration matters in the event of a company's insolvency. I can assure noble Lords that the registration requirements will continue to be the same throughout the Unites Kingdom. Amendment No. 9 is wholly consequential to Amendment No. 2. In view of this explanation, I hope noble Lords will not press these amendments.

Lord Sainsbury of Turville: My Lords, the amendments in this group are designed to address concerns raised by noble Lords in Grand Committee regarding the requirement for separate statements of initial shareholdings and capital and the requirement that subscriber addresses be provided in the statement of initial shareholdings. I will deal with the first of these concerns. Amendment No. 3 removes the requirement for separate statements of initial shareholdings and share capital, replacing this with a requirement for a combined statement of capital and initial shareholdings. This is intended to simplify the formation requirements by combining the two statements. I hope noble Lords will agree that this improves the formation process. The contents of the combined statement are set out in the new clause, which will replace Clause 11 and is introduced by Amendment No. 5. With the exception of what I am about to say about the requirement to provide names and addresses of subscribers, the information to be provided in the new statement remains as before, except for a minor amendment in Clause 11(4)(b), which specifies, in the interests of clarity, that the nominal value to be provided in respect of the subscriber shares is the nominal value of each share.
	I turn now to the requirement that subscribers' names and addresses be provided. Subscribers are presently required to provide this information when they subscribe to the memorandum by virtue of the form of memorandum prescribed in regulations made under Section 3 of the 1985 Act: the Companies (Tables A to F) Regulations, 1985. This is carried forward in the current drafting of Clause 10. The new statement of capital and initial shareholdings envisaged by Amendment No. 5 no longer requires that subscribers' names and addresses be provided. Instead, there is a power contained in subsection (3) of new Clause 11 to enable the Secretary of State to prescribe in regulations what information about identity should be provided for the purpose of identifying subscribers. I should add that we envisage that this power will initially be used to continue to require that the names and addresses of subscribers are provided. However, as now, the address need not be a residential address; a contact address is sufficient. Both the Serious Fraud Office and the Companies Investigation Branch have confirmed that this information is useful in combating fraud. We see no reason not to retain this requirement for the time being.
	The power will, however, provide additional flexibility for the future and should it be concluded that, for example, the requirement for subscriber addresses is no longer necessary, the power could be used to remove this requirement, or provide for alternative, or better information pertaining to the subscribers' identity. I hope that that goes a long way to addressing noble Lords' concerns. I beg to move.
	Lord Hodgson of Astley Abbotts: My Lords, we are grateful for the Minister's comments and for responding to our request to simplify as far as possible the procedure for forming a company. I am slightly disappointed about his response on the need to continue to give details of the subscriber because all too often the initial capital is committed by a company agent. Therefore, I am not quite sure what the measure achieves. Companies are rarely formed by the people who will operate them. Therefore, the people who the Minister is concerned may be acting fraudulently will not be on the register when the company is started. A company is usually started with a couple of people such as a solicitor or a company agent. I accept that the Government want some time to experiment, but I doubt whether the measure will achieve very much by providing the relevant names given the nature of the people who provide the initial capital. Overall, this is certainly a step in the right direction.

Lord Hodgson of Astley Abbotts: My Lords, in moving Amendment No. 6, I wish to speak also to a long list of consequential amendments—Amendments Nos. 7, 11, 12, 28, 30 and 148 to 156 inclusive. These amendments concern a range of clauses beginning with Clause 13 and ending with Clause 259.
	We return to an issue that we discussed in Grand Committee. I am afraid that I did not find the Minister's response persuasive and I want to have another crack at the matter this afternoon. As your Lordships will be aware, the Bill makes a big change to the current law concerning company secretaries. The current law is that all companies must have a secretary. The Bill, if passed as currently drafted, would change that and require only public companies to have a secretary, leaving private companies to decide themselves if they wish to have a secretary.
	These amendments do not concern the issue of where the line should be drawn between those companies required to have a secretary and those not so required. That is a matter which we shall debate when we reach Part 12 of the Bill. Instead these amendments deal with the situation under the Bill of those companies that are not required to have a secretary but which choose to have one anyway.
	The Bill quite properly re-enacts many of the powers and responsibilities that exist at present for secretaries where they are to be required by law; but, as currently drafted, the Bill does not make adequate provision for the empowerment of secretaries where they are not required by law. Our position on this is simple—where a company chooses to have a secretary, that secretary should be fully empowered to exercise all the functions and bear all the responsibilities of a legally required secretary.
	The amendments proposed in this grouping are designed to achieve that aim. To pinpoint a specific example where this is necessary we should look at Amendments Nos. 28 and 30 to Clause 44, which is headed, Execution of documents. These amendments would allow a company with a secretary, even if that is not required by law, to continue to be able to execute documents under the signature of the secretary and a director. This issue has attracted the interest of wider groups than those one might expect to be interested, such as the Institute of Chartered Secretaries and Administrators, and other groups, such as the Law Society, have raised concerns that the Bill as drafted is not satisfactory.
	When this issue was raised in Grand Committee, the noble Lord, Lord McKenzie, dismissed it as unnecessary, stating that the clause,
	"introduces more flexibility for all companies, not less. It in no way hinders the execution of a document by a private company that chooses to continue to have a secretary".—[Official Report, 30/1/06; col. GC41.]
	However, I argue that that is not the case. Although a private company will continue to be able to authorise its company secretary to attest the affixing of its common seal, it will not retain the existing facility for a document to be executed under hand by a director and the secretary. It is true that a private company will be able under Clause 44(3) to execute a document by having it executed by a director whose signature is witnessed by another person who could be the secretary. However, we do not consider that that provides an acceptable alternative for the following reasons.
	First, under the current law, the director and the secretary can execute a document at different times, but that will not be possible for a private company under the new formulation. Secondly, we think it highly likely that private companies will continue to execute documents as they have been permitted to do since 31 July 1990, pursuant to Section 36A(4) of the Companies Act 1985, because they will be unaware of the change implicit in Clause 44. All the precedent books will be rendered out of date if the Bill proceeds in an unamended form. There would need to be wide publicity to bring this change to the attention of all companies affected by it. The change is likely to give rise to considerable confusion. In this respect we feel that Clause 44 is anything but deregulatory as it removes a facility for companies which exist under current law.
	The Bill as currently drafted retains the facility for public companies—that is, companies required to have a secretary—to execute documents under the signature of a director and the secretary of the company, or by two directors of the company. We see no reason why private companies—that is, companies not required to have a secretary—who choose to have a secretary should not be afforded the same facility. Indeed, not to allow this is likely to result in considerable confusion before this change to the law becomes known.
	In so far as the provisions of the first company law directive—which require the public register to contain particulars of the persons who are authorised to represent the company in dealings with third parties—would require the particulars of a company secretary to be included in the register of companies if he continues to have signatory powers in relation to deeds and other documents executed by the company, we propose that the Bill is amended to provide that where a company that is not required to have a secretary chooses to have one the particulars of that person should continue to be registrable. That is the rationale behind our Amendments Nos. 11 and 12.
	The other amendments seek to ensure that the correct frameworks are put in place for secretaries who have been appointed despite there being no obligation to do so.
	Amendments Nos. 6 and 7 would amend Clause 13, headed, Statement of proposed officers, to require any company that has a secretary to include that proposed secretary in the statement of proposed officers.
	Amendments Nos. 148 and 149 concern Clause 252, headed, Qualifications of secretaries of public companies. These amendments would make it clear that any company with a secretary must ensure that the secretary has the requisite knowledge and experience, but that only public companies would require secretaries to hold one or more of the qualifications stated in subsection (2) of that clause.
	Amendments Nos. 150 to 156 inclusive seek to amend Clauses 253 to 259 inclusive and would simply change the wording of the Bill to provide the appropriate powers for companies that have a secretary, despite not being required to do so. I beg to move.

On Question, amendment agreed to.
	[Amendments Nos. 11 and 12 not moved.]
	Clause 19 [Articles of association]:

Lord Sainsbury of Turville: Model articles of association have been prescribed for companies limited by shares since 1856. The current form of model articles contained in Table A are prescribed under the Companies Act 1985. By long-established tradition, the model articles that apply to a company are those prescribed at the time that company was first formed by registration. For example, if a company was formed and registered as a private company limited by shares under the Companies Act 1929, it remains subject to the 1929 Table A, unless or until its articles exclude or modify the provision of that Table A or it consciously adopts a later Table A. Clause 20 allows the Secretary of State to prescribe different model articles for different types of company and that has prompted us to think about which model articles should apply when a company changes its status, particularly when it moves from being a private company limited by shares to a public company or vice versa. We think that consistency with the approach adopted in previous companies Acts requires that the model articles that applied when the company was first registered should continue to apply following the change of status. That means, for example, that if a company to which model articles apply starts life as a public company, it will remain subject to the model articles prescribed for public companies when the company was originally formed and registered, even if it subsequently re-registers as a private company. We have consulted practitioners and they agree that this is the right approach.
	The purpose of these amendments is simply to make it clear what the position is since we felt that the drafting of Clause 21 as introduced could have been misinterpreted as suggesting that a different set of model articles applies on re-registration. I beg to move.

Lord Razzall: My Lords, I do not wish to correct the noble Lord, Lord Sainsbury, who has been extremely helpful in our deliberations on the Bill, but I draw to his attention the fact that I suspect that he read the wrong briefing note on the amendment that he has just moved. He was moving Amendment No. 13, and I think that he read the note for Amendment No. 14. His officials are grinning; I will look away to avoid embarrassing him further. I hope that when we get to Amendment No. 14, the Minister does not feel the necessity to read it again, because we all have busy lives. The amendment that he was moving indicated that we deleted:
	"A company's articles of association are part of its constitution",
	and substituted the words in the amendment. Is the Minister saying—this is a provocative question—that a company's articles of association are no longer part of its constitution?

Lord Sainsbury of Turville: My Lords, I had better set the record right rather quickly on this and speak to Amendment No. 13 rather than moving on. I was so carried away by the speed at which we were going through the amendments that I skipped this one.
	Amendment No. 13 does two things. It removes some duplication in the existing drafting of Clause 19 and reinstates an important requirement of the 1985 Act about the format of companies' articles. Clause 19(3) states that a company's articles are part of its constitution. That is of course true, but only a few lines earlier Clause 18(a) says that unless the context requires otherwise, references in the Companies Act to a company's constitution include its articles. On reflection, we propose to remove the current Clause 19(3) as unnecessary duplication. Section 7(3)(b) of the 1985 Act requires that a company's articles are to be divided into paragraphs numbered consecutively. This is a sensible and long-standing requirement of UK company law, which is helpful to companies and persons searching the public register alike, and we wish to preserve it.

Lord Sainsbury of Turville: My Lords, we are extremely grateful to the noble Lord, Lord Hodgson, for proposing Amendments Nos. 16 and 17. It does seem that, as drafted, Clause 23 could be read as giving companies a general power to provide that they could never amend or repeal specified provisions of their articles, even with the unanimous consent of all their members. Our intention in this clause is to implement a recommendation of the Company Law Review that companies should be able to entrench elements of their constitution, that is, provide that the amendment or repeal of some provisions of the articles requires a bigger majority than is required to pass a special resolution, or the satisfaction of some other special condition. On reflection, the clause as it stands does not have the desired effect.
	We do not wish to give companies generally a power to set particular provisions in stone for ever. That would run against the grain of our company law and could lead to unfortunate results in particular cases. We are not sure that the amendments are the best way to achieve the desired results, but we will give careful thought to what amendments should be brought forward at a later stage to make the position clearer.
	On Amendment No. 18, which is also concerned with the articles of association, where a company's articles contain provision for entrenchment, that is a provision which can only be altered if certain conditions are met. Any change that the company makes to its articles must be accompanied by a statement of compliance. The registrar is entitled to rely on that statement as sufficient evidence that all of the procedural requirements as regards the alteration to the company's articles have been met. In addition to making a statement of compliance, the company must also give separate notice to the registrar, under Clause 24(1), where it has inserted a provision for entrenchment in its articles. The purpose of this notice is to ensure that when the registrar receives the document making or evidencing a change, the registrar and persons searching the public register are on notice that special conditions apply.
	On the other hand, when a company that has made provisions for entrenchment in its articles changes its articles so they no longer contain such any such provision, any flagging of the articles on the public register to the effect that they contain provision for entrenchment needs to be removed, so that the registrar's systems will not be expecting any future changes to its articles to be accompanied by a statement of compliance under Clause 24(2) and persons searching the public register will not be misled. Hence the requirement to give a notice under Clause 25(1) which will trigger the removal of a flag put on following notice under Clause 24(1).
	Amendment No. 18 would introduce a further requirement to file a notice when an existing provision for entrenchment is altered. This is unnecessary. Once a notice under Clause 24(1) has triggered the flagging of a company's articles as containing provision for entrenchment, not much is added by requiring a further notice to be given on the amendment of that provision, since any changes made by the company will need to be accompanied by a statement of compliance under Clause 24(2) until notice is given under Clause 25(1). This is another bit of regulatory overkill. In the circumstances, I hope that the noble Lord will agree to withdraw this amendment.

Lord Sainsbury of Turville: My Lords, the Bill as it stands provides mechanisms for registering alterations to a company's constitution which are made by the company itself or by legislation. However, courts and other authorities have powers, for example, to alter companies' articles in certain circumstances.
	At present, the Bill does not provide for the registration of such changes. The new clause after Clause 36 obliges companies to notify changes ordered by courts or other authorities to the registrar.
	Clause 18 provides that a company's constitution includes not only its articles, but the various types of resolution and agreement listed in Clause 30(1). As it stands, Clause 36 requires a company whose constitution is altered by an enactment to re-file a copy of its constitution as altered with the registrar. This means that where, for example, a company's articles are altered by an enactment, the company is required not only to file an updated copy of its articles reflecting that alteration but to re-submit a copy of its entire constitution. For the purposes of Part 3 of the Bill, a company's constitution is defined in Clause 30 and this means that, as currently drafted, Clause 36 would require the company to also re-file any Clause 30(1) resolutions or agreements which it has already registered in addition to a copy of the articles as amended. Clearly this would serve no useful purpose and the amendment to Clause 36 avoids this by requiring registration of an updated version only of the part of a company's constitution which the enactment has altered.
	The other amendments in this group are consequential on the introduction of the new clause that will come after Clause 36.
	The amendments to Clause 24 remove the need for a statement of compliance where provision for entrenchment is introduced by an enactment or the order of a court or other authority. There is no need for a statement of compliance in these circumstances because the authority for making any such changes is that of the court or other authority making the order and does not come from the articles themselves. The amendment to Clause 27 removes potential duplication of filing requirements between that clause and the new clause that will come after Clause 36, while also ensuring that there is no duplication between Clauses 27 and 36. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, the issue of the legislative gap as to the resolution of conflicts between the memorandum and the articles when the transfer of provisions is to take place from the memorandum to the articles under the provisions of the Bill was raised by us in Committee and it continues to give concern amongst practitioners.
	In Committee the noble Lord, Lord McKenzie, said that this would be dealt with,
	"in the context of transitional arrangements under Clause 882".—[Official Report, 30/1/06; col. 24-25.]
	From our discussions with the Bill team—who have been very helpful on this matter—we understand that this may take a number of guises: amendment to the Bill at a later stage of its passage; free-standing transitional provision in subordinate legislation; using subordinate legislation to amend the Bill after Royal Assent; or a mixture of any or all of the above.
	There has been concern amongst practitioners in the world outside as to how that will be proceeded with. Can the Minister outline the ways in which the Government plan to deal with this fundamental issue? I beg to move.

Lord Sainsbury of Turville: My Lords, in speaking to the amendment, I shall speak also to Amendment No. 32. Amendment No. 31 brings into the Bill the existing requirement in Section 350 of the 1985 Act for a common seal used by a company to include its name. It also brings in the offences associated with failure to do this. It thus consolidates the provisions relating to seals. As noble Lords have noted, this makes it easier for those concerned to discover the current position.
	Amendment No. 32 follows on from our consideration of this clause in Grand Committee. The noble Lords, Lord Hodgson and Lord Razzall, pressed for an amendment to spell out on the face of the Bill that a company has power to appoint an attorney to execute deeds and documents on its behalf within the UK. The 1985 Act, like the Bill as presently drafted, makes an express provision for this only in relation to execution of deeds and documents outside the UK. We agreed to reconsider this clause.
	Although there is already nothing in the law that prevents companies from appointing attorneys to execute deeds and documents within the UK, we have carefully considered whether it would be helpful to include a provision that spelled this out, alongside the provision which applies to execution abroad. Having sought the views of the Law Society, the Law Society of Scotland, the Incorporated Law Society of Northern Ireland and the British Bankers' Association as to the best way forward, we now propose this amendment. It is of course essential to avoid the risk that a change would cast doubt on previous acts by companies or to risk limiting what they might otherwise do. It was that concern that led to the Law Commission recommending against change in its report, The Execution of Deeds and Documents by or on behalf of Bodies Corporate.
	We believe that, by being part of a comprehensive reform of company law, this amendment avoids that risk. It should be seen, among other reforms, in the light of our proposals for new model articles which do not include a provision akin to Regulation 71 of Table A, which permits the directors, by power of attorney or otherwise, to appoint any person to be the agent of the company. The amendment is not intended in any way to limit the purposes for which attorneys may be appointed by companies. It is merely to state in the Bill that which is considered to be the present position, which is that the power under the law of England and Wales and of Northern Ireland—namely, the legislation to appoint attorneys for this purpose for deeds and documents executed abroad—does not prevent attorneys from being so appointed in respect of deeds and documents to be executed. I therefore hope that noble Lords will agree to the amendments. I beg to move.

Lord McKenzie of Luton: My Lords, in Grand Committee, the noble Lord, Lord Hodgson, eloquently argued—that is what it says in my speaking note—that it should be unnecessary for the registrar to wait for the expiry of the 28-day period, during which dissenting shareholders can apply to the court to cancel a resolution for the re-registration of a public company as private limited, where it was clear that there were insufficient dissenting shareholders to make such an application to the court—for example, because more than 90 per cent of the shareholders voted in favour of the resolution. Amendment No. 37 is designed to address that point. It will permit what we understand to be the registrar's present practice of processing an application for re-registration from public to private limited within the 28-day statutory period where it is clear that an application to cancel the resolution is incapable of being made.
	The second amendment in this group—Amendment No. 38—is designed to address a further point that was made by the noble Lord during the debate in Grand Committee. The concern is that, where there are sufficient dissenting shareholders to object to the re-registration, the registrar has developed a practice of delaying the re-registration process beyond the 28-day statutory period during which shareholders can object. This practice has developed because the registrar may only hear about such an application to cancel the resolution for re-registration from public to private limited when she receives notice—currently under Section 54 of the 1985 Act—from the company, and the company itself may not find out that such an application to court has been made until after the expiration of the 28-day period. To ensure that the registrar can know about last-minute applications to the court, she delays registrations for a further period, to allow time for such notifications to be made.
	Amendment No. 38 addresses those practical difficulties. It requires the dissenting shareholders, on making an application to the court to cancel the resolution for re-registration from public to private, to give notice direct to the registrar. The aim here is that the registrar should then be able to re-register the company without undue delay, provided that there has been no notification about an application to the court by the applicants or the company.
	I trust that these amendments address the noble Lord's concerns. I am grateful to him for raising these matters in Grand Committee. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, we have had a comfortable run in through the first clauses of the Bill, but this group of amendments takes us to rather more controversial matters. In moving Amendment No. 56, I shall speak also to Amendments Nos. 57 and 58 to Clause 116 of the Bill which concerns the rights to inspect a shareholders' register and request copies of it.
	The noble Baroness, Lady Murphy, spoke about this issue in Grand Committee. We were pleased to support her then and I am grateful for her continuing interest and support today. There has been much public interest in this area. We note the letter in the Financial Times on 4 May which explains graphically the use to which share registers are being put under the current law—in this case, a vulnerability to "boiler rooms". The letter, which is from Mr Christopher Pearson, company secretary at Balfour Beatty states:
	"A number of our shareholders . . . have been telephoned over the past few months by the organisation in question, claiming to be connected with us, and offered some dubious 'opportunities' to buy shares . . . As a result, we have been forced to circulate all our shareholders with an appropriate warning".
	The letter continues:
	"I know that we are not the only company that has been put in this position",
	a fact that is borne out by a subsequent article in the Financial Times on 6 May which lists Diageo, Close Brothers, GlaxoSmithKline, MFI and Majestic as some of those other companies. Indeed, today's Financial Times leads on the whole story with GSK saying that investors are being targeted by extremists.
	By introducing the provisions to allow companies to refuse access to the register, the Bill goes some way towards tackling the problem. However, there remain concerns over the exact formulation of these provisions and their effectiveness at preventing this mischief in a broader context. The thrust of our amendment is to give some guidance as to when companies can legitimately refuse to give access to the register of members. As I have said, these are new powers and, as such, there is no precedent on which companies, the public or the courts can rely. This is not eased by the current drafting of the Bill, which states that the court must be satisfied that the register is,
	"not sought for a proper purpose"
	A number of questions clearly arise out of this—the biggest of which is what is "a proper purpose"?
	Without clearer guidance on this matter in primary legislation, we may well be left with a situation where, on the one hand, unscrupulous companies could limit or delay access to the register by repeatedly appealing to the court to seek approval not to disclose the information. On the other hand, we could see companies not wishing to risk the expense of the court process to protect a few names on the register when they are uncertain that they will get the approval that they seek. As a result, they expose their members unnecessarily to precisely the danger that this provision is intended to prevent.
	Our amendment would redefine this power to refuse access to the register, focusing on the words "improper purpose". As a further guidance to the courts, we have also stated a purpose that will be regarded as improper—one that,
	"is likely to lead to harassment or intimidation of members".
	That is not an exclusive list and it leaves it open to the courts to rule on other purposes as being either proper or improper, but it goes further than the current drafting, which offers no guidance at all.
	The Minister will notice that the shape of our amendment has changed since Grand Committee when he had difficulty accepting the second part, which included in the definition of "improper",
	"the promotion of goods or services not related directly to the business of the company".
	As he said in Grand Committee on 1 February,
	"but the second does not, I consider, achieve her purpose. The promotion of widgets is not, I believe, a proper purpose for permitting access to the register of members of a company manufacturing widgets, and yet, under the noble Baroness's amendment"—
	the amendment of the noble Baroness, Lady Murphy—
	"the court would have no discretion to relieve the company from its obligation to permit access to an applicant wishing to use the register as a mailing list to promote such widgets".—[Official Report, 1/2/06; col. GC 150.]
	This appeared to be a major obstacle to the meeting of minds that day, so we have taken the amendment away and reconsidered it. On reflection, we see the force of the Minister's arguments and have removed that part of our amendment. We introduce this amendment in the hope that the Government will now find that they agree sufficiently to be able to accept it.
	There is a wider issue here that is not directly addressed by the amendment and to which I alluded in Grand Committee. How can members prevent access to their details, by the menaces that this provision speaks to prevent, and ensure that their information cannot be found via other avenues—at Companies House, for example? If that is not addressed in some way by the Government, we may find ourselves plugging a hole here in the Company Law Reform Bill only to find the water rising over the top of the dam in another place. I hope that the Government will consider this wider issue as well as the amendment. Not only did the Financial Times lead today on it, but The Times itself wrote a further article about planned law against extremists being useless. This is an important issue which is a matter of great public concern. I beg to move.

Lord Jenkin of Roding: My Lords, I have hitherto taken no part in debates on the provisions of the Bill, and I have been full of admiration for my noble friends on the Front Bench who have been dealing with this almighty Bill. In the past few days, however, I have been in contact with the Association of the British Pharmaceutical Industry and the BioIndustry Association, who have expressed their grave concern that the animal rights terrorists—I am afraid I call them terrorists because of their tactics—seem always to be outflanking the legislation passed by Parliament and the measures taken by the authorities to curb their activities.
	This is not the time to get involved in what I might call Home Office matters, but it has always seemed to me quite astonishing that we have had laws on the statute book, certainly for more than a century—originally in the context of trade union legislation—that preclude watching, besetting, intimidation and harassment, but that none of this, it seems, can be used against animal rights terrorists. However, that matter is not before the House this afternoon. I, too, was struck by the articles in The Times this morning in the wake of the campaign by, I believe, a so-far anonymous group to intimidate the shareholders of GlaxoSmithKline, our leading pharmaceutical company, which has a long and distinguished record of new drugs and treatments to fight diseases. GSK has put out a press release. I will not read it all, but will make just one point. It says:
	"The letter campaign, which is designed to target GSK's continued use of Huntingdon Life Sciences . . . is a typical tactic used by extremist groups and is intended to cause fear and intimidation".
	I find it appalling that, in the 21st century, major industries of enormous importance to this country and our economy have to put out such releases to try to defend their shareholders from the attentions of these terrorists. Indeed, it is extraordinary that the authorities have begun to wake up to the nature of the campaign only in the past year or two. It is also astonishing that, to the public, robbing a grave appeared to be much the most serious action that these people have taken. That action occasioned considerable police activity to find the remains of the lady whose grave was robbed.
	I had thought that my noble friend's amendments answered the question asked in The Times this morning as to what is meant by "proper use", but the debate and the noble Lord, Lord Razzall, echoed an exchange of e-mails that I have been having with the ABPI only this afternoon; namely, that this needs to be thought through further to ensure that there is an adequate defence against the improper publication and improper use of shareholders' registers. Companies must know where they stand when they receive requests for these details and where they suspect that the person making the request may be contemplating improper use.
	Further sanctions are needed; they are not yet in the Bill. I hope that, between now and Third Reading, or perhaps even when the Bill reaches another place, the Government may be able to produce legislation that effectively addresses the problem. At the moment, the Bill clearly does not do so. Indeed, it leaves it undefined. As the spokesman quoted by The Times this morning makes clear, what is meant by proper use? My noble friend's amendment tries to deal with that question and refers specifically to harassment and so on. But there could well be other improper uses. I used those words when I talked to the ABPI this morning. This needs to be carefully thought through. This must not be legislation on the hoof.
	This is a desperately serious matter for the industries concerned. I know that the Minister now accepts that and has been at the forefront of efforts to try to curb it. Nevertheless, as we have seen in the past day or two, it still continues and is a source of considerable anxiety. I leave the House with only one more thought: if businesses are driven abroad, and if research of the kind carried out by GlaxoSmithKline eventually has to be done in other countries, what is absolutely certain is that the care of any animals that may be used in the research or in testing will be grossly inferior to anything that is enforced by our Government here in Britain. We have the tightest regulation. I ask terrorists whether that is what they want, or have they now become so imbued by the viciousness of their campaign that that does not worry them at all?
	I find this a very disturbing feature of our society at present. My noble friend has tabled an amendment that goes at least part of the way to dealing with this problem, and I have tabled a few amendments on the disclosure of directors' private addresses, which clearly must be addressed. The Government have gone a long way to meeting the industry's case on that, but the shareholder issue is equally important. The shareholders of the company that built the laboratory in Oxford were targeted, which knocked the company's share prices for a burton because so many of the shareholders felt they had to sell. This is economic damage of enormous importance which, as I said, achieves nothing for the purposes of the people who are concerned about the welfare of animals. I hope that the Government will now treat this with extreme seriousness and will perhaps move at Third Reading to tighten up the legislation.

Lord Borrie: My Lords, the last speaker raises a number of sympathetic thoughts in my mind. He made some useful points, but also indicated matters that lead me to question the achievements that this amendment could have if it were passed. I sympathise, as almost all your Lordships will, with pretty well everything that the noble Lord, Lord Jenkin of Roding, said. He referred to animal rights terrorists who have no scruple, to use the words of the noble Lord, Lord Forsyth, and will stop at nothing. That immediately raises the question of the practical value of this amendment. I am sorry to say that, because one would like to achieve something to damage the effectiveness of these people. I cannot imagine how people without scruple who have shown enormous ingenuity in their activity would not be able through nominee inquiries to find out what they could not get directly if this amendment were passed.
	My other question often crops up in legislation. We have here a major piece of legislation dealing with the reform of company law. There is a provision which one could latch onto for this particular purpose, the objectives of which I am all in favour of. Is it right, however, in dealing with the question of people's rights generally to get hold of the names of shareholders for proper purposes, to try to deal with improper purposes? Is it right to try and alter this basically because we naturally strongly disapprove of the activities of certain types of animal rights people who want to get hold of these lists? I very much doubt whether passing an amendment to this Bill, which deals generally with company law, to deal with the particular problem is the right way to go about it.

Lord Jenkin of Roding: My Lords, I was basing my remarks in support of the amendment moved by my noble friend, on the statement reported in The Times today by Mr John Roundhill, chairman of Britain's main registrars' association, which said that the proposed reforms—that would be as they are in the Bill, not in the amendment—due to be debated in the House today would prove ineffective. Mr Roundhill went on to say that there is no way in which one can define a "fit and proper" purpose.
	From what the noble Lord has said from the Dispatch Box, I understand that he wants a return to what is in the Bill. That does not meet Mr Roundhill's complaint at all. This is what my noble friend has been trying to do and it is why we need to think this through in order to get something really effective.

Lord Razzall: My Lords, before the noble Viscount sits down, he has touched on one of the points that would apply with certain relationships between beneficial owners and the companies providing nominee shareholdings for those beneficial owners. But he does not deal with the thousands, if not millions, of small shareholders who purchase particularly ISAs through institutions. If you buy an ISA through Barclays bank, you do not have the luxury of saying "I tell you what: I want to have nominee company X who will provide me with the annual report". Those small shareholders are locked into the nominee company that the provider of the ISA is leading them to. They have no option. When you decide whether you will put your £6,000 into an ISA on 5 April, you do not think to yourself, Lord Bledisloe made the point. I have got to make sure that that company will provide me with the annual report and give me my voting rights". Of course not. So those myriads of small shareholders are locked into the structure that the financial institutions have given them.
	Of course, the point is right that if you have 2 million shares in GlaxoSmithKline, you can probably persuade your stockbroker's nominee company to give you the annual report. But we are talking about the hundreds of thousands, if not millions, of small shareholders who are into small shareholding deals, usually through ISAs, which require them to accept the nominee company and the rules that that institution gives them.

Lord Sainsbury of Turville: My Lords, let me reiterate that the Government are committed to promoting a long-term investment culture through the wide participation of shareholders and the responsible exercise of share ownership rights. To that end, the Bill implements a comprehensive package of provisions to ensure that voting processes are more transparent and to help enfranchise those, such as ISA or PEP investors, investing through nominee accounts.
	The provisions in Part 9, as the first element of this package, are intended to ensure that companies can, through their articles, enable indirect investors to exercise and enjoy varying levels of shareholder rights as suits their needs. In addition, the Bill enables brokers to confer voting and other governance rights on indirect investors. Brokers will be able to use the enhanced proxy rights introduced by Clause 303 in Part 13 to give indirect investors rights to attend, speak and vote at general meetings. That will give investors the option to choose brokers who pass on all such participation rights. I very much agree with the noble Viscount, Lord Bledisloe. There is an issue of choice here. When we are talking about shareholder democracy, it seems strange to say that shareholders should not be in a position to exercise that choice. When shares are held in nominee accounts, we believe that it is for individual investors to ensure that the terms and conditions under which their accounts operate suit their particular needs.
	One of the keys to enhancing the position of indirect investors is to ensure that they have access to the information that they need. The Bill therefore includes further measures which will improve the position of investors. First, all quoted companies will be required to publish on a website their annual report and accounts, thus enabling indirect investors to have the same access to annual company information as registered members. Secondly, while e-communications are legally available now, the Bill will permit companies subject to shareholder approval to default to sending shareholder communications electronically. That should encourage greater use of e-communications, making it easier and cheaper for nominee operators and brokers to forward information to their account holders.
	We understand that the UK Shareholders Association, The Share Centre and some other brokers and intermediaries are pressing for the enforcement of legal rights for indirect investors. They argue that it is a matter of principle about shareholder democracy. We could not agree more with their aim. As I said, it is the Government's aim to enhance shareholder engagement and to encourage the responsible exercise of governance rights. However, amendments that impose a compulsory provision on companies are not the way to achieve greater enfranchisement of indirect investors. Business groups, including the CBI, the Institute of Chartered Secretaries and Administrators and the Association of Investment Trust Companies have consistently opposed a compulsory approach to enfranchising indirect investors. They point to the high administrative burden that such an approach would impose on companies and raise some key concerns.
	First, on practicality, the systems required to allow the nomination by members of parties to exercise shareholder rights are expected to be complex and costly. The Registrar of Companies would have to maintain details of any third parties via a sub-register for each member who has nominated them. Both the main register and these sub-registers would have to be updated on an ongoing basis. A company would have to invest in putting such systems in place, even though the number of indirect investors wishing to exercise full shareholder rights may be very small. Estimates for likely take-up of governance rights vary from just 0.3 per cent to 5 per cent of investors.
	Secondly, on the principle of compulsion, should it not be the shareholders as a whole who decide whether the company should bear the administrative burden of setting up and maintaining systems to enfranchise indirect investors, when the vast majority of them may never exercise their new rights or take note of information they receive? Noble Lords may argue that under a voluntary approach to enfranchisement, companies will still need to implement appropriate changes to their administrative systems. The point is that companies will be able to develop the most efficient, cost-effective systems to suit their needs, rather than incurring the costs of complying with a "one size fits all" legislative approach.
	The Government believe that the better way to achieve greater enfranchisement of indirect investors is to work with the industry—the companies, brokers and investor groups—to promote an environment in which it becomes standard practice without creating an inflexible bureaucracy of enforcement. We have reached that view after considering carefully the arguments and interests of the many different business and investor groups and other interested parties on this issue.
	As the noble Lord, Lord Hodgson, noted in Grand Committee, good practice in this area is beginning to emerge in the UK. We are encouraged by some excellent examples of the market developing solutions to enfranchise those investing in ISA schemes, and other indirect investors. Several brokers are already taking voting instructions from underlying investors, while many London Stock Exchange listed companies are making additional copies of their corporate information available to third parties on request.
	We do not agree that little has been happening; it is wrong to think that there is little appetite among the industry to enfranchise indirect investors. A number of PLCs have been actively engaged in the debate on shareholders' rights through the industry-wide shareholder rights working group. That group, comprising members of the CBI and the United Kingdom Shareholders' Association as well as intermediaries and brokers, has been considering solutions that work in line with the proposals in the Bill. So, we are seeing the market working here, with people making choices of the kind that the noble Viscount, Lord Bledisloe, mentioned and shareholders choosing which way they want to go on this issue. A voluntary, market-based approach seems the best approach to be taken in this situation.
	As I explained at Second Reading and in Grand Committee, the Bill's reserve power under Clause 137—for the Secretary of State to compel companies to provide information to indirect investors—is intended as an additional tool towards encouraging and achieving greater enfranchisement. Better informed investors will be better equipped to demand voting and other governance rights from nominees and the companies in which their investments are made. The scope of the power was strengthened following consultation through the Company Law White Paper of March 2005, to ensure that indirect investors could be given parity of treatment in information rights with those holding shares indirectly. We would prefer market solutions to develop, but if they do not the power will be available—and, in that context, we do not have to wait for another Company Law Reform Bill. My own view is that one of those is enough in one's lifetime. The powers will be there so that, if we find things are not moving, we can take things forward.
	By deeming certain provisions to be within a company's articles without necessarily being written in, the noble Lord's amendments would simply create more confusion for companies, shareholders and indirect investors. In short, I fear that, as before when we debated the clauses in Grand Committee, these amendments would impose disproportionate cost burdens on industry compared with the benefits to be gained for the relatively small number of indirect investors who want to but find that they cannot exercise full governance rights. On the basis of a market-based, voluntary approach being better than heavy-handed regulation, I urge the noble Lord to withdraw the amendment.

Lord Freeman: My Lords, I am grateful to the Attorney-General. He certainly set out the position very clearly. It still does not deal with the key issue, which is that there is a distinction between how we deal with shadow directors and ordinary directors. Nevertheless, the noble Lord's comments have been helpful. They will be studied and we will have to return to this at a later stage if necessary. In the meantime, I beg leave to withdraw the amendment.

Lord Freeman: My Lords, this is a key amendment. It would leave Clause 156 indicating only that a company director must act in good faith in what he considers to be the interests of the company. That is the present position in law. It is well established and well understood. My amendment would remove the list of other duties that the Bill seeks to codify. We will have an opportunity, following this amendment, to consider the explanation for the fresh draft produced by the Government in Amendment No. 79. We believe that Amendment No. 79 is unacceptable and that we should pursue the status quo. We should give guidance on other issues—which will continue to develop in coming years—of which directors should take account.
	We on this side of the House support the principle of "enlightened shareholder value" in the management of businesses. That is not at issue. The Company Law Review was right to introduce the concept and to talk about the issues that any sensible board of directors should consider in the discharge of their responsibilities. We believe in the pursuit of good corporate governance. Indeed, many of my noble friends on this side of the House and many noble Lords from the Liberal Democrat Benches—to say nothing of those on the Government Benches—belong, as I do, to the All-Party Parliamentary Corporate Governance Group and support its work. We also believe that directors should discharge high standards of corporate social responsibility. That, too, is common sense. Any good company and any sensible board—whether of a large or small company—will adopt and implement the principles enshrined in the Company Law Review and, indeed, in the Government's amendment. However, the argument is not about whether these principles are correct; it is about whether they should be codified in law, which implies rigidity, potential liability and extra cost.
	The Government's approach in Clause 156, as proposed to be amended by Amendment No. 79, is to pursue dialogue with the various lobby groups and interest groups, including noble Lords on this side of the House, and seek a compromise. I have paid tribute to the noble and learned Lord the Attorney-General and to the noble Lord, Lord Sainsbury. However, I am sorry to say that the compromise is a muddle. It is wrong in principle and it should be rejected. It is a compromise between, on one hand, those who favour retaining the status quo on the face of the Bill—with guidance being given to boards of directors—and, on the other, the lobby groups and those who misguidedly say that you should put into statute a whole list of other duties. This would be counterproductive. I have repeated the basic principle that directors should act in good faith in the interests of the company, meaning the interests of the shareholders.
	It is significant that a number of directors, company secretaries, lawyers and other advisers have made—and continue to make—representations to us on this side of the House about the muddled Amendment No. 79. Their argument—and ours—is that statute should give a clear and simple definition of "duty", understood by all. That should certainly be placed in statute, as in common law. However, for a broader modern understanding of that basic duty, on a non-statutory basis, the Secretary of State should have power to issue guidance on some of the other issues that boards should take into account. These will grow and change in number over the years. That is perfectly correct.
	Let me deal very briefly, so that the Attorney-General and others have plenty of time to contribute to this important debate, with four reasons why the Government's proposal is flawed and our approach is correct. First, it is surely key to maintain the principle that directors must use their own judgment in discharging their duties. They must use subjective criteria and not follow rigid, prescriptive objectives contained in externally mandated rules. The Bill is clear, in Clause 157, that directors should use "independent judgment" in discharging their basic duty to shareholders, and, in Clause 158, that they must exercise—and here we agree—"care, skill and diligence". The fundamental principle that each individual director must use his own subjective judgment as to what is in the interests of shareholders should not be shaken or clouded.
	Secondly, the Government acknowledge that the other duties in Clause 156 are not exclusive. I think that the Attorney-General has already indicated that they are not by the way in which the Government have sought to amend the clause. The duties outlined are indicative of a much longer list that could arise over time. It is far better, in this imprecise field, to use the more flexible and amendable mechanism of guidance notes.
	Thirdly, the proposed extended definition of duties would apply to all directors: from BP plc at one end, right down to the small company managing flats in a residential block at the other. That, surely, must be wrong. One size does not fit all.
	Finally, there is the argument repeated in today's newspapers. I very much agree with it. The statutory route would significantly hamper the running of businesses, adversely affecting the wealth-creating sector of our economy. Boards would spend valuable time and costs seeking advice on whether they were following the strict letter of the law. Some existing directors would fear litigation from pressure groups. Some newly created companies might seek registration outside the United Kingdom—my noble friend Lord Forsyth drew attention to this risk earlier in today's proceedings—and potential directors might be dissuaded from joining boards.
	I believe that the common sense way forward is to stick to the simple accepted definition of the duty of directors. They should have regard to the needs and interests of their employees, their customers, the environment in which they operate and the long-term sustainable future growth of their businesses, but guidance, not regulation, is the better way forward. I commend my amendment to the House. I beg to move.

Lord Lea of Crondall: My Lords, I wish to add a couple of points to the contribution of the noble Lord, Lord Razzall, because I begin from a not totally dissimilar position.
	I remind the House that the noble and learned Lord the Attorney-General made a very important point in the Moses Room when he said that,
	"the main purpose in codifying the general duties of directors is to make what is expected of directors clearer and to make the law more accessible to them and to others. The problem is that the traditional formulation of that duty does not achieve that".—[Official Report, 6/2/06; col. GC254.]
	I have not heard the noble Lords, Lord Freeman and Lord Hodgson, and other noble Lords on the Conservative Benches address that point.
	There is another point made by elision, which ought to be brought out into the open—I think that it has been touched on by the noble Lord, Lord Razzall—which is that somehow we are interfering here with the common law, which has been with us since the 12th or 13th century or whenever. But surely company law has had a major part to play in what the modern capitalist system is constrained by. Limited liability is a tremendous protection for the system. It is not a case of the common law being involved here; what is involved here is an intervention by Parliament in 1862, as the noble Lord, Lord Razzall, said. That is the second reason why it is the property of Parliament to present a framework for companies. Again, I do not think that that point has been addressed by the Conservative Benches.
	It may well be true that some people in the great world out there do not understand the subtlety of the distinction between the interests of the company and the interests of the shareholders. But there must be many millions of people out there who would query the formulation that the noble Lord, Lord Freeman, has used. He did so in good faith; he believes very passionately that it is the only way in which the system can work. The noble Lord says that the interests of the company equate with the interests of the shareholders. He then says that he is not against matters concerning long-termism, the interests of employees and so on and so forth being in codes of practice. So we are back to the angels on the head of a pin regarding whether Clause 156 changes anything substantive at all. As my noble friend Lord Sainsbury has said on so many occasions—we are all repeating ourselves—the fact is that the clause does change something. The "something" which it changes is that directors should have explicit regard to the points that are set out and that those points do not comprise just a box-ticking exercise. I believe that that is a reasonably accurate summation of what has been said during the past couple of months.
	Ministers have lent over backwards to make many concessions. I give the example of safe harbours. Many important points made by Members on the Conservative Benches in Grand Committee in the Moses Room have been listened to and acted on—a few more have been acted on than suggestions made by noble Lords on this side of the House. However, I do not complain about that today; I shall complain about it tomorrow.

Lord Lea of Crondall: My Lords, the noble Lord has spent a few minutes making an argument that adds up to saying that there is a perception in the City—for want of a better expression—that certain things could happen. There have been many occasions that I remember vividly where there has been a trades union Bill and there has been a perception in the trades union movement that this, that or the other would be the consequence of a Bill and Ministers, the CBI and others represented mainly on the other side of the House have said that if it is a question of perception, then it should be corrected by educating people that the perception is wrong. If the noble Lord is saying that it is not a question of perception, that is different, but if he is saying that it is a question of perception, surely the question becomes: What about changing the perception? Is that not the responsibility of people in Parliament?

Lord Goldsmith: My Lords, I am disappointed and surprised at the way that the noble Lord, Lord Freeman, put his amendment. The concept of enlightened shareholder value was recommended by the Company Law Review and has been there the subject of consultation and comment for a long time in many processes.
	A number of noble Lords, such as the noble Lords, Lord MacGregor and Lord Razzall, have been good enough to note that the Government, in particular the noble Lord, Lord Sainsbury and myself, have spend a lot of time since Grand Committee talking to different groups, particularly business groups of different sizes and other interested parties and nobody—nobody—has challenged the idea that we need to include the concept of enlightened shareholder value within the Bill.
	As the noble Lord, Lord Razzall, reminded us, the noble Lord, Lord Freeman, started by saying that he supported enlightened shareholder value. If he supports it, why does he put forward an amendment that takes us not forward but backwards? I will explain why it takes us backwards.
	First, let us get rid of one or two misconceptions. In putting forward his support for the amendment, the noble Lord, Lord Patten, painted the picture of him sitting in a boardroom deciding that it would be in the better interests of the company and its shareholders to accept a bid which was lower because it was more likely to be a credible one that would stick. What are the Government doing in the Bill that would make that decision any different? The noble Lord, Lord MacGregor, said—as business leader after business leader has said to me—that we already take all of these factors into account. There is nothing new in this. The noble Lord, Viscount Bledisloe, said exactly the same. What is the problem? There are not six duties, as the noble Lord, Lord Forsyth, said: there is one duty. That is what our amendment in the next group makes clear. There is one duty which includes having regard to factors to which companies already give regard. I give way to the noble Lord, Lord Patten.

Lord Patten: My Lords, I am glad that the noble and learned Lord has given me the opportunity to respond to his direct request to me to give an example of what is new in a director having to face the job of a deciding whether to recommend a bid with a lower cash value. Paragraph (f) concerns,
	"the need to act fairly as between members of the company".
	Some members of the company might accept that my judgment was right if the board listened to the arguments and decided to go that way. Other members, such as the hedge funds represented through prime brokerages to which my noble friend Lord MacGregor referred, might say that I had not acted fairly in relation to their interests in regard to company X, because they wanted the short-term profits from the bigger cash bid. And hey-ho, off we go to the courts, aided by activist lawyers and prompted doubtless to decisions by activist judges.

Lord Goldsmith: My Lords, I am sorry if that is the best the noble Lord can do. It simply will not do. Paragraph (f) is concerned with,
	"the need to act fairly as between members of the company".
	The one common ground that we all agreed was that ultimately the decision of what is in the best interests and to the benefit of the members as a whole is for the directors to take. There will be differing views. There may be differing views between the directors. There will be differing views between different members of the company and different shareholders. But that is not acting "fairly" between them. Acting fairly would be, for example, a situation where one class or group of shareholders was offered more for its shares than another group. It is important to consider carefully just what the duty means and what having regard to these factors implies.
	For example, having regard to,
	"the likely consequences of any decision in the long term".
	Surely that is something that directors do now. Having regard to,
	"the interests of the company's employees".
	That is a matter of statute at the moment under Section 309 of the Companies Act 1985. Having regard to,
	"the need to foster the company's business relationships with suppliers, customers and others".
	Surely all good directors do this when making decisions. Having regard to,
	"the impact of the company's operations on the community and the environment".
	Again, for the reasons given by the noble Viscount, Lord Bledisloe, a company will consider whether a decision will create such damage to its reputation that it is not in the best interests of its members to do so.
	It does not mean that any one of those factors is determinative. Ultimately, it is for the directors to decide. Having regard to those factors is what a director,
	"considers, in good faith, would be most likely to promote the success of the company for the benefits of its members as a whole".

Lord Forsyth of Drumlean: My Lords, if the noble and learned Lord is arguing that this is done and provided by statute already, why is it necessary to have it at all if it is not adding something, as critics of the Bill suggest.

Lord Goldsmith: My Lords, the noble Lord, Lord Lea, gave that answer as indeed we have given it before—and which I may respectfully suggest some of the comments in the House suggest may be necessary—so that there is clarity on what the responsibilities of directors are. That is why their duties are to be put in statute. That is what the company law review said and what we have said. If there are people at the moment who do not have regard to these factors then—on the basis of the best business practices that we have had explained to us by some of the best business leaders in this country—they should.
	The next surprising part of the amendment tabled by the noble Lord, Lord Freeman, was the suggestion that these matters should instead by laid down in guidance from the Secretary of State. I almost felt like going to my colleagues and saying, "Yippee, they have now decided that we can do all this by ministerial fiat". On some other amendments we were taking the opposite line and being severely criticised for not putting all things to the decision of Parliament. I do not know where that matter in the noble Lord's amendment comes from, unless from a belated intention to support Amendment No. 87 tabled by my noble friends for guidance to be put forward. It is simply not workable. It can only be envisaged that one day the Secretary of State will say that all company directors ought to have regard to the interests of the company's fat cats for the next month or so: let us give them guidance to that effect. Surely that is not the way we expect this matter to be dealt with. Surely it is right to identify these factors in the way that has been done—through tremendous consultation—and put them into statute. None of the factors has been disputed. When we come to our amendment I will explain why.
	The next point that has been put forward is the one that has been consistent in the discussions that we have had with different groups. The noble Lord, Lord MacGregor, raised the point that it would be expensive and that there is a need for a proper audit trail, a paper trail. I have consistently said that I do not accept that. When we come to the derivative claims provisions, it will be seen that what is necessary for an individual shareholder to get a claim off the ground will be to persuade a judge that the shareholder has a prima facie case that he should be able to bring that claim. He will have to show that the directors are prima facie in breach of duty. I have never understood the proposition that it is necessary to have some particular form of paper trail. There is nothing in the Bill that says there is a need for a paper trail. Somebody says that a director did not have regard to the long-term interests of the company and the director responds, "Don't be stupid, of course I did". But where is that written down? The director says, "I don't need to write down something like that, because that is the fact; that is the truth. If you want to write it down that is fine as well. But I do not accept this proposition".
	Reference has been made to particular views that have been expressed in newspapers today. We have considered very carefully the arguments that have been put forward by certain lawyers from different places but I do not find their case persuasive. That is not because I want to see companies subjected to unnecessary bureaucracy. I do not believe that this clause will do that. I confess from my professional experience that legal advice can sometimes be very cautious, sometimes excessively so; but that is the point that has been put forward today in the newspapers—it is excessively cautious. But, answering directly the point put by the noble Lord, Lord MacGregor, I do not agree that the effect of passing this Bill will be that directors will be subject to a breach if they cannot demonstrate that they have considered every element. It will be for the person who is asserting breach of duty to make that case good. They will have to do so at their own expense if they bring a derivative claim and they will have to recognise that they cannot claim damages for themselves, as is the case in some other jurisdictions, but only for the company. The only effect of a derivative action by the shareholder, if it were successful, would be to obtain damages for the company. It is true that the shareholder might benefit from that—but he might not; he cannot obtain damages for himself. Due to our present court system in which, generally, the loser pays costs, it would not be a cost-free exercise in any event if someone brought such a claim.
	So we have listened very carefully to those concerns. We have sought to meet many of them in two ways. First, it will be made clear when I explain the government amendment that the factors presently in subsection (3) will be incorporated into subsection (1) so that they can be seen as part of a single duty. We never intended them to be separate duties. Secondly, we are strengthening the procedure for derivative claims so that there cannot be frivolous actions. They will be struck out if there is no decent basis for them.
	I started by saying that this amendment is going backwards—it is. A clear example of that, which I put respectfully to the noble Lord, Lord Freeman, is that it amounts to repealing something that has been in our law for more than 20 years. It has been a statutory requirement under Section 309 of the Companies Act 1985 that:
	"The matters to which the directors of a company are to have regard in the performance of their functions shall include the interests of the company's employees in general, as well as the interests of its members".
	No one has said to us that that statutory provision that has been in place for 21 years is proving unworkable. No one has said to us that, as a result of that, "we have unnecessary expensive paper trails". No one has said "we cannot make decisions in the best interests of the company". No one has said to us, "because of that duty, people are declining to do business in this country". I say, respectfully, to the noble Lord, Lord Freeman—I shall not quite descend into the political arena—that if the Conservative Party stands on the proposition that it now wants to remove the duty of company directors to have regard to the interests of employees, that will be noted.
	My final point picks up on the comments of the noble Lord, Lord Razzall. We have tried hard to steer a constructive course between those who would want much more onerous duties to be placed on directors and those who would wish there to be no duties at all. I know that that is perhaps an exaggeration, but noble Lords will understand my point. We have tried to strike that middle ground. As the noble Lord, Lord MacGregor, rightly said, you have to look at derivative claim rights as well as the statement of duties. I genuinely believe that we have met that balance. I commend our substantial government amendments, which we will consider in due course and for which my noble friend Lord Lea has given notice he will exact some anger tomorrow, if not today. I respectfully invite the noble Lord, Lord Freeman, to recognise that enlightened shareholder value, which he says he supports, is what the Government are seeking to do. I ask him to withdraw his amendment.

Baroness Thornton: My Lords, I rise to speak to Amendments Nos. 80 to 87—Amendment No. 87 should probably have been taken separately, but I was trying to help the business in the House when I discussed it with the Clerk. I very much welcome Amendment No. 79 proposed by my noble friend the Minister and compliment my noble friend Lord Lea on his imaginative way of dealing with this matter, because I had not thought to amend the Government's amendment. However, my amendments address the same issues.
	My understanding is that if Amendment No. 79 is agreed to, my amendments will fall, but I feel that it is important to have the opportunity to discuss them at this stage. The Government have made significant progress, for which I compliment them, towards addressing the issues that were raised during the discussions about directors' duties in Grand Committee and at Second Reading. Indeed, the discussion will continue to take place in further stages of the Bill and in another place.
	In the government amendment, I particularly welcome the removal of the words
	"so far as reasonably practicable".
	I also welcome the addition of the new subsection (2), which is a logical and useful prompt regarding companies that are run for the benefit of those other than members—social enterprises, for example.
	However, the government amendment should have gone further. I fear that it does not quite deliver on the principal issue of directors' duties, which would involve the inclusion of a positive duty for company directors to take reasonable steps to minimise significant potential negative impacts of their company's operations on communities and the environment around the world. That is the nub of the new wording to subsection (3) proposed in Amendment No. 81.
	I would also like to take this opportunity to remind noble Lords about the Trade Justice Movement and the CORE coalition, which are concerned with corporate social responsibility. These coalitions represent more than 100 organisations with 9 million individual members. They are calling for amendments to the Company Law Reform Bill to ensure that UK companies are more accountable for the impact of their activities on employees, communities and the environment. Having listened to the debate that took place earlier this afternoon, I believe that they are quite right in those concerns, which is why I have chosen to support them.
	The discussions that we have had so far have been about the nature of directors' duties. The Government have been considering two contrasting approaches—enlightened shareholder value and pluralism. The approach finally adopted was enlightened shareholder value, so ably explained by my noble friend the Minister earlier. Those of us who wish to address these issues face the problem that the key assumption underlying enlightened shareholder value is that business prosperity and responsible business behaviour are two sides of the same coin. However, the CORE coalition, the Trade Justice Movement and many of us believe that this assumption places too much emphasis on the voluntary approach to corporate social responsibility. Indeed, Action Aid, Friends of the Earth, Christian Aid, Amnesty International and other such organisations have numerous case studies that demonstrate that the voluntary approach to CSR cannot be relied on to prevent corporate abuse and to ensure that companies minimise their negative impacts on communities and the environment.
	I waited in vain for the noble Lord, Lord Freeman, to address issues to do with, for example, the violated rights of women fruit pickers in South Africa and the many well recorded examples of British companies that, while on the face of it have strong corporate responsibility policies, pursue practices in other parts of the world, such as Africa and Asia, that are to the detriment of local communities and the environment.
	The Trade Justice Movement and CORE support a pluralist approach. Ever practical, however, we realise that that is the least likely option to be pursued under these circumstances. It is recognised that the enlightened shareholder value approach explained by my noble friend is the route down which we will go. Therefore, we argue that that needs to be strengthened as far as possible.
	Specifically, Amendment No. 80 repeats the use of the phrase "in good faith" used in subsections (1) and (2) and is intended to reinforce the message that the duty to take account of environmental and community issues is a serious obligation. That is a positive clarification of that duty. Amendment No. 81 deals with the issue that has already being referred to—the environment and social impacts. Amendments Nos. 82 and 86 relate to the wholesale approach of UK corporate performance in dealing with its impacts, as I have already mentioned, on the environment and local communities. Amendment No. 84 addresses the issue of the high standards of business conduct and would ensure that they included ethical standards. That should be explicitly addressed to strengthen and clarify that duty. Amendment No. 85 would make it clear that the minimisation of adverse impact is desirable, and that responsible behaviour, including taking account of the interests of a company's full range of stakeholders, can be economically beneficial.
	As I said, Amendment No. 87 should probably have been taken separately, because it concerns the recognition that company directors will need detailed guidance about what, in practical terms, the enhanced duties will mean for them and how the duty to minimise adverse impacts relates to other duties in Clause 156. Such guidance will need to be regularly updated, because the way in which directors' duties should be translated into practice is likely to change through the passage of time. Clause 156 requires the Secretary of State for Trade and Industry to publish guidance on how directors should interpret the duties in the clause, and how they can reconcile or integrate the different considerations that the clause requires them to take into account. The guidance can be updated more frequently and easily than the Company Law Reform Bill can be once it has become law.

Baroness Northover: My Lords, I support the amendments on directors' duties. I very much welcome the Government's Amendment No. 79, but I hope that they will look hard at the other amendments in the group. I join the noble Baroness, Lady Thornton, in commending CORE and the Trade Justice Movement for all their efforts in this regard.
	I understand the theory that the best interests of companies should embrace the protection of the environment—it would surely be short-sighted to degrade that—and of the communities in which the companies are working. However, we all know that this is not necessarily the case. As Liberal Democrat spokesperson on international development, I see cases both of enlightened action and of unenlightened action by companies. Let us take as an example the British companies identified by the United Nations expert panel as being involved in malpractice in the Democratic Republic of Congo. Their actions certainly do not promote the interests of the community; in fact, they foster conflict. And they certainly do not promote the interests of the environment; in fact, they are tearing it apart for its mineral wealth. To judge by the previous debate, the Tories seem to closing their eyes to this, whatever they may say in other debates.
	We all know about the actions of companies in the Amazon forest and elsewhere. That is why I wonder whether the Government's amendment, welcome though it is, still allows too much room for such companies to get off the hook, and why I am glad that additional amendments have been tabled to strengthen this clause. The amendments would, for example, minimise the effect on the environment and not simply have regard to it, and would promote sustainable development.
	I also welcome Amendment No. 87, which would require the Government to publish guidance on the duties of company directors. I hope that that would help those directors to clarify their responsibilities. Perhaps such guidance would reassure some of the noble Lords who spoke in the previous debate and make things clearer for them. I therefore look forward to hearing the Minister's response to the debate.

Lord Razzall: My Lords, before the Minister responds, I join my noble friend Lady Northover in saying how much I welcome the amendments in the names of the noble Baroness, Lady Thornton, and the noble Lord, Lord Whitty. In a sense, it is a shame that we did not have a longer debate on these issues in Grand Committee. We spent 37 days—no, 13—in the Moses Room, and had the opportunity to have an extensive debate on this, but I well understand why some of these amendments have been tabled rather late. They do, I think, get the balance right between Amendment No. 79, which we broadly support, as the Minister knows, and some of the views expressed by the noble Baroness, who represents the interests of a large number of the NGOs, as she rightly said. I do hope that the Government will see to what extent they can take on board the points that she has made before the Bill finally passes to another place.
	It will not surprise noble Lords that I end by being political. I say to the Tory Opposition—although I recognise that the noble Lord, Lord Freeman, is not speaking here for the leader of the Conservative party—that being environmental or in favour of sustainable development is not simply about going to Norway with skis on or putting Zac Goldsmith or Bob Geldof on a commission. I will see how the Conservative Party votes on these issues in another place before I decide whether they are prepared to make hard choices.

Lord Goldsmith: My Lords, I thank all who have taken part in this short debate. I am particularly grateful for the welcome given to Amendment No. 79, and particularly to the noble Lord, Lord Freeman, who dealt with it very graciously in the light of the decision on the previous amendment. Everything that my noble friends, the noble Earl, Lord Sandwich, and the noble Baroness, Lady Northover, have said is powerful stuff; of that, there is no doubt. It demonstrates the balance that the Government have been trying to achieve between the powerful points they make and the other concerns we discussed in the previous debate. I shall deal with the amendments in turn, and shall explain the Government's attitude to them. There are a number of them, although, as the noble Lord, Lord Lea, said, that is to some extent the result of ingenuity and the attempt to avoiding pre-emption, for which I congratulate him.
	Amendment No. 79A would require the directors to take account of the factors listed, rather than to have regard to them. The intention may have been to impose a more onerous requirement. The clause creates a requirement to "have regard to", rather than to have some other consideration of the matters listed in subsection (3), so as not to diminish the overriding nature of the duty in subsection (1), which we intend to conflate with subsection (3). The words "have regard to" also reflect the wording used in Section 309 of the Companies Act 1985, to which I drew attention in the previous debate, requiring directors to have regard to the interests of the employees.
	The amendment would also delete the words "amongst other matters". As I said in moving this amendment, those words are helpful, indicating that the list is not exhaustive. I would not want to see them go.
	Amendments Nos. 79B, 79C and 79D would amend the list of factors by painting them in, if I can put it this way, more pluralist colours. There are three reasons why that would be wrong. First, the list of factors is based on those recommended by the Company Law Review and, as such, has benefited from lengthy consultation. Secondly, these words do not need to be added to make the point that both the company and, more widely, society will benefit from an enlightened approach. That is implicit in the clause. Thirdly, we are concerned that, in so far as the words would have an effect, they might confuse directors about what they should be seeking to achieve. The overarching objective of directors should be the success of the company, for the benefits of its members as a whole; that is a key part of the enlightened shareholder value concept. We do not want wording which leads to confusion on that point.
	Amendment No. 79E is effectively a description of the case for enlightened shareholder value. That is unnecessary because, by having regard to the factors, directors will achieve long-term sustainable business success for the company. That is implicit in the clause. Amendment No. 79F is also unnecessary and likely to lead to confusion. This is perhaps the most substantial amendment, because it shifts the objective of the clause. It is important to recognise—we have said this before, and I am happy to repeat it—that having regard to something does not mean that a box-ticking approach is acceptable. It is meant to be more than mere window dressing. It is therefore right that weight is given to the individual factors. The problem with the amendment is that it would point the directors in two different directions. Its introductory words:
	"In fulfilling the duty imposed by this section",
	point the directors towards the duty in subsection (1), of deciding what will promote the success of the company. However, the amendment would also require them, so far as was reasonably practicable, to promote the interests of the company's employees or minimise any adverse impact of the company's operations on the community and environment. That is just the situation which could lead directors into the difficulty of not being able to determine which of those objectives should have priority. The concept of enlightened shareholder value means that they need to properly have regard to those factors as I have indicated, but then to reach a judgment as identified by subsection (1).

Baroness Miller of Chilthorne Domer: rose to ask Her Majesty's Government what progress they have made in implementing the water framework directive.
	My Lords, we have one reason to be grateful for the drought that is currently hitting the south-east and one reason only: it has raised the issue of the importance of water and highlighted what a precious resource it is, thus moving the issue up the agenda. The number of speakers lined up to contribute to this debate shows that there is still far too much to do in this regard. However, I am grateful to have the opportunity of returning to this matter with the noble Baronesses, Lady Byford and Lady Farrington. All three of us were involved in the debate on the Water Act when it went through this place.
	The purpose of the debate is to explore what progress the Government have made since the Water Act went through, when they resisted putting the water framework directive into that Act so that it would be implemented by primary legislation. It is important for us to follow closely the progress of the water framework directive for a number of reasons.
	I wish to return for a moment to the issues of just how precious a resource water is and what this directive will mean. The water framework directive will mean that all across Europe member states will change the situation whereby we treat water badly by polluting or wasting it and using it with scant regard to the ecosystem that depends upon it. The directive will require planning and action to protect lakes, rivers and other water bodies from pollution and, where they are polluted, to ensure that clean-up measures are undertaken. The first tranche of this work should be undertaken by 2015, by which time pollution of our inland and coastal waters should be diminishing dramatically, according to the directive.
	This directive also rightly recognises that pressures on water as a resource will increase. Even since the directive came into being that is something we are increasingly aware of, as climate change begins to make rainfall less predictable. Balancing conflicting demands on water will become increasingly important. Those demands should be resolved by getting water users together and thoroughly involved in the debate.
	The water framework directive might seem to be aimed purely on an environmental basis but, as I shall demonstrate by developing my arguments in this debate, it is not purely environmental; it does have great benefits both for economic and social considerations in the use of water.
	Besides exploring the progress that has been made in implementing the directive, the purpose of initiating this debate tonight is to test the level of the Government's commitment. If this new approach to the water environment is to succeed it is going to need a new level of involvement and commitment from government level right down to every single user of water—not just within Defra but also within ODPM, through its planning policy statements, the Department of Transport, the DTI and all departments whose policies are critical to the water environment. As I mentioned, the gains are not only environmental; cleaning up the water environment should have substantial economic benefits as well.
	In your Lordships' House on 25 February 2004, the noble Lord, Lord Haskel, made a very interesting and informed speech, pointing out that:
	"A study arising from the European Union's water resources framework directive by the Department of the Environment concluded that the amenity benefits could total £1.9 billion in England and Wales alone from the improved water. In addition, there could be benefits to anglers of £706 million".—[Official Report, 25/2/04; col. 288.]
	It is, therefore, quite wrong to see the water framework directive as simply a cost without economic benefits. Until now, of course, in terms of water use and the improvement of water, we have relied on regulation and pricing. The periodic review that Ofwat runs will continue to deal with pricing and involves a large number of stakeholders.
	My first question to the Minister concerns how that will work. How will it fit in with the directive's measures? Inevitably, a large number of stakeholders involved will be the same people but there will be two processes running in parallel.
	The Environment Agency is the competent body designated to take the directive forward and it will have to increase dramatically the level of public involvement for any success. When one talks to people about their river or lake, where they fish, walk or watch birds, they do have a very strong feeling about their body of water. But if one talks about water as a large amorphous regional body of water, they simply do not have the same commitment to it. Part of the problem is that, at the moment, the water framework directive is planned around river basins on a regional basis, which is far too big for people to relate to. Although the Defra consultation recognises that there will have to be work at catchment level, I would like the Minister to reassure me that the work will, indeed, take place at a really local level.
	Another problem involves the title. To most people, the "Water Framework Directive Implementation Plan" or the "River Basin Management Plan", does not seem like something they want to get involved with. The plan will have to take on a very different emphasis in order to make the connection between the everyday decisions that local authorities, farmers, industry and households make on their water bills and the state of their rivers. They need hard facts and figures around which to make choices.
	The Consumer Council for Water makes the reasonable point that it is very anxious about what effect the water framework directive's implementation will have on water prices. Defra has set up the collaborative research programme which will develop a methodology for assessing costs and benefits. But when it has assessed those costs and benefits, it must present them to the public in an understandable form so that the pubic can make real choices.
	What worries me most about the Defra consultation on river planning guidance is the fact that it sounds as though the Government are intending to apply for substantial derogations from the directive because it is all too difficult. Parts of it read as an exercise where the Government, through the Environment Agency, will choose to do the minimum in order to comply with the directive. Perhaps I may quote an example for the Minister from the Defra consultation on river planning guidance. It states:
	"Where new sustainable human development activities adversely affect a lake or river then we should claim that as a defence".
	Frankly, I think that that would be a gross failure of the planning system. Given the technical ability that now exists, there would be no excuse except a failure to invest in proper infrastructure or working methods, yet such a failure is suggested by that document. The document is so full of suggestions of "alternative objectives and defences" to achieving good status for water, that parts of it read as though the Government have already thrown in the towel, saying: "Well, we just won't try then". I hope the Minister will be able to say that I am wrong about this.
	Very few water bodies are included in the framework's programmes. From Parliamentary Questions tabled in January this year, it emerged that only 7 per cent of lakes and 31 per cent of rivers have so far been identified as eligible for inclusion. Not all SSSIs are included, which is incredible because they would benefit most from the measures to bring our waters up to a good ecological status.
	At the end of this exercise there will be the question of who decides what is a reasonable price to pay. Will that price be decided by river basin or nationally, and how will it be funded? I have not heard a voice dissent from the "polluter pays" principle but for very diffuse pollution—from transport, for example—that price might have to come from general taxation.
	Finally, there is the question of who is the polluter. I return to the example of washing powder, which pollutes with phosphates. Is the polluter the consumer who uses washing powder? If so, the water bill is the right place to charge for clean-up. Is it the water companies, which are not investing in enough phosphate-stripping technology at sewage plants? Or is it the washing powder manufacturers that choose to use phosphates in the first place? The one certainty is that the polluter must be tackled. But the Government must give the public a clear steer so that, together with all the other players in this field, they can start to decide who should pay for what and who will benefit from what. As I said, there are substantial benefits.
	The noble Lord, Lord Bach, in concluding the debate in your Lordships' House on 30 March, said:
	"The Government are committed to promoting measures to help improve sustainable water resources management in England and Wales".—[Official Report, 30/3/06; col. 883.]
	If that is the case, they must use this directive as a tool to further that commitment. I look forward to hearing the Minister's reply on exactly how they mean to do that.

On Question, amendment agreed to.
	Clause 197 [Payment by company: requirement of members' approval]:

On Question, amendment agreed to.
	Clause 199 [Payment in connection with share transfer: requirement of members' approval]:

On Question, amendment agreed to.
	Clause 217 [Ratification of acts of directors]:

Lord Sainsbury of Turville: moved Amendment No. 118:
	Leave out Clause 221 and insert the following new Clause—
	"PERMITTED USE OR DISCLOSURE BY THE REGISTRAR
	(1) The registrar may use protected information for communicating with the director in question.
	(2) The registrar may disclose protected information—
	(a) to a public authority specified for the purposes of this section by regulations made by the Secretary of State, or
	(b) to a credit reference agency.
	(3) The Secretary of State may make provision by regulations—
	(a) specifying conditions for the disclosure of protected information in accordance with this section, and
	(b) providing for the charging of fees.
	(4) In this section—
	"credit reference agency" means a person carrying on a business comprising the furnishing of information relevant to the financial standing of individuals, being information collected by the agency for that purpose; and
	"public authority" includes any person or body having functions of a public nature.
	(5) Regulations under this section are subject to negative resolution procedure."
	My Lords, I beg to move. |
	[Amendments Nos. 119 and 120, as amendments to Amendment No. 118, not moved.]
	On Question, Amendment No. 118 agreed to.
	Clause 222 [Disclosure under court order]:

Lord Hodgson of Astley Abbotts: My Lords, as I explained a minute ago, this relates to derivative claims, which we debated in Grand Committee at some length. As the noble Lord, Lord Sharman, and others have said, there has been a lot of interest in this from City practitioners and other interest groups.
	We wish still to explore whether the right balance has been achieved in this part of the Bill. As I explained in Grand Committee, one of our major concerns about the Bill has been the double-whammy effect of codifying directors' duties and at the same time creating a statutory basis for members to bring a claim against company directors. Although it is easy to get hooked up in this area, a real issue is whether it will act as a disincentive to men and women of quality and experience being ready to serve on the boards of public companies. If it does, this cannot be in the interests of UK plc. As I said, we recognise that the Government have made a series of steps forward in the amendments that we debated in the previous group. But the changes do not meet all our concerns. It is because of that that we have tabled this amendment on which I will be grateful for the Attorney-General's response.
	How did we get into this difficult position with people outside the House being very concerned? It is now agreed that the Minister, Alun Michael, was wrong to claim in his letter of 9 November 2005 to the Financial Times that this Bill will make the law in this area clearer and more accessible, but will not result in a major change in the law. In fact, we now know that the proposed statutory claim has been widened from the current common law position to include claims of negligence. There have also been a number of other changes, such as the removal of the concept of fraud on the minority. We have been through all this before and I will not go any further, because we spent some time on it in Grand Committee.
	Therefore, I turn to our amendment. We are extremely grateful to the Law Society for its help in drafting it. The amendment seeks to insert into Clause 242(2) three new provisions obliging the court to refuse permission to continue a claim: first, where the decision not to pursue the claim has been taken by the directors of a company, unless in reaching that decision the court considers that they are in breach of their duties—that is, the court should not second guess the commercial judgment of the directors unless the court considers that they breach their duties as directors in so deciding not to proceed; secondly, where the decision not to proceed could be taken by the shareholders, always ignoring votes cast by shareholders with a personal interest in the decision—that is, the court believes that the generality of shareholders, excluding those with a personal interest on either side of the argument, would not have wished to proceed with the claim, which, in part, parallels one of the points that the noble and learned Lord made in his amendment; or, finally, where the court concludes that pursuing the claim will not be in the company's interests.
	In Grand Committee, we debated a number of amendments which were intended to limit the scope of the court to grant permission to bring a derivative action. This amendment is designed to achieve the same aim by adding to the list of grounds on which the court must refuse permission in Clause 242(2). The purpose of our new subsections (2)(d) and (2)(e) is to introduce a threshold test which does not involve either a mini-trial or the delay and expense of holding a general meeting. The essence of any derivative action is that the company is being or would be prevented improperly from bringing the claim, as a result of which justice will be done only if the claimant is permitted to bring the claim on the company's behalf. In the absence of such impropriety, no injustice is done.
	All that the threshold test requires is that the claimant satisfies the court that there is a substantial risk that a decision of the company not to pursue the claim, whether at board or shareholder level, was or would be improper. Such a test strikes a proper balance between the company's need for certainty and the shareholder's need for protection. Unless the claimant can pass that test, he should not be permitted to continue.
	New subsection (2)(f) will require the court to refuse permission if in its view it would not be in the company's interest for the claim to be pursued. That would enable the court to reach its own view on the matter rather than being required to revisit the directors' decision-making process, as required under Clause 242(3), which is in contrast to the provisions of Clause 242(2)(a).
	We remain concerned that the Government's current approach of putting considerations of this kind in subsection (3) is inappropriate because it will be only after several years of jurisprudence that it will be possible for firm advice to be given on the court's approach to the exercise of its unfettered discretion in relation to the matter set out in that subsection. In the meantime, we run the risk of damaging uncertainty with all that that entails for the attractions of the UK as a place to incorporate and operate a company. I therefore look forward to hearing from the noble and learned Lord. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the noble and learned Lord for putting that information on the record. It is helpful for us in our further and final deliberations on this technical area. He was right that the circumstances raised in the amendment were intended to fit into the areas of where "leave must be refused" as opposed to issues to be taken into account; that is, under Clause 242(2) as opposed to Clause 242(3). That was because practitioners were concerned that it will be some years before one quite knows how Clause 242(3) will work in terms of the jurisprudence. Therefore, they wanted the matters to be higher up the pecking order.
	I am obliged to admit the force of the noble and learned Lord's argument about the third proposed subsection, which was that the court's judgment would start to stand in for the judgment of the directors. As he rightly pointed out, we are not keen to have that happen. As I said, I am grateful to the noble and learned Lord for having put the information on the record. It gives the noble Lord, Lord Sharman, and me something to talk to people about in trying to pull this issue together. In the meantime, I beg leave to withdraw the amendment.

Lord Hodgson of Astley Abbotts: My Lords, it is with some relief that we leave the area of derivative claims and move to Part 12 of the Bill, which relates to company secretaries. In moving the amendment, I shall speak also to Amendments Nos. 145 to 147. They are all concerned with the second half of the discussion which we had earlier today about the role of the company secretary. We debated the merits of empowering company secretaries, where companies choose to have one despite not being required by law so to do. On this occasion, we come to the issue of which company should be required to have a secretary.
	As the House will know, the Bill radically alters the law so that only public companies will in future have to have a secretary and private companies will be free to choose. As we have said previously, we appreciate that this desirable for many companies. The role of a company secretary does not add much of value to many small businesses and it is often filled by family members in a box-ticking exercise to satisfy the legislative requirements. The removal of the requirement will ease the regulatory burden on companies and we entirely support it.
	However, on closer inspection of the Bill, we wonder whether where the line is proposed to be drawn is entirely suitable. There are number of extremely large private companies—some may dwarf many public companies—and a secretary would add value in those situations. The safeguards that a company secretary traditionally adds for creditors and corporate governance are surely as applicable in a large private company as in a public company.
	We wonder also whether the provision is sending the wrong message to business in the UK and overseas. With corporate governance issues making the headlines in recent years and many jurisdictions tightening up their compliance requirements, is it not counter-intuitive to remove a function which historically has played a valuable role in ensuring that companies fulfil their obligations?
	Our amendments would relocate the point at which a secretary is required from the public-private cross-over to the audit threshold. As we have argued previously, if a company has reached a sufficient size to require the added checks and balances in audit, why should it not require a company secretary? The amendment would have the effect of excluding small and medium-sized companies and therefore achieve the deregulatory aim which lies at the heart of this change in the law, while keeping high standards of corporate governance, which should be required in companies which receive significant levels of outside investment. I hope the Minister can be slightly more sympathetic to our concerns. At 10 minutes to 10 o'clock, he is looking fairly stern-faced. Nevertheless, I shall have a crack with Amendment No. 144, which I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, in speaking to Amendment No.160, I shall also speak to Amendments No. 161 to 169 inclusive. I hope the Minister will finish off this very satisfactory first day on Report with a suitably deregulatory flourish of his sword. With his help, I am sure that we are going to strike out some four pages of this gargantuan Bill. It refers to Chapter 5, Part 13, "Additional Requirements for Quoted Companies," which is all about independent polls. It is an issue we raised in Grand Committee, concerning new provisions which allow members to requisition an independent report on a poll. There have been a number of concerns over this new power being granted to members of companies. On a financial level it will impose a potentially significant burden on any company required to commission such a report. On a practical level it may cause cumbersome delays in decision-making. With the Minister's assistance we wish to strike out nine clauses, covering no less than five pages of his little Bill. I hope he will not be upset by that.
	Throughout the passage of the Bill, there have been a number of occasions when the Government do not seem to have had a grip on the reality of how businesses are run. Businesses run to tight deadlines; quick decisions need to be made on the spot. It is all well and good for the Government to say that this Bill forms part of their wider objective to,
	"promote greater transparency and promote shareholder engagement". [Official Report, 1/3/06; col. GC 135]
	At what cost are they achieving this? There is a cost in time, money and management diversion. These provisions do not give adequate value for money, particularly as there are existing mechanisms under Clause 459 of the Companies Act 1985, and indeed in the common law—for shareholders to question the validity of a poll. These mechanisms do not appear to need fixing. The Minister said in Committee:
	"If there is no problem, there is no point in producing a remedy for it". [Official Report, 1/3/06; col. GC 134]
	Having given careful consideration to the arguments put forward by the Minister in Grand Committee, I am afraid to say that he has failed to convince us that there is a problem here. Therefore I would urge him to reconsider the value of all these clauses and what it is that he is trying to remedy. The Minister has produced a heavy and elaborate hammer to crack a non-existent nut. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, we end on a downtick, if I may use market phraseology. That was a disappointing response. I am extremely grateful to the noble Lord, Lord Sharman, for some heavy softening-up artillery fire, which was direct and well aimed. The Minister fell back on three points: the Company Law Review recommendation, that we have to retain the "vigorous integrity of our voting systems"—I think that was the phrase he used—and that there was no requirement to hold polls because, as the noble Lord, Lord Sharman, said, polls are becoming more common. The one thing that was missing from the Minister's response was any evidence of the problem that this huge chunk of clauses sets out to cure. We will read carefully what he said, because he took a lot of time and trouble to answer the points that the noble Lord, Lord Sharman, and I made in Grand Committee, and he deserves a careful response. However, I think this is something that we will want to consider again because I do not think he has answered the points that we have been making. We will want to consider this again on the grounds of deregulation and of trying to find a way to make the Bill more effective and efficient. However, we owe it to the Minister to read carefully what he said. I beg leave to withdraw the amendment.